-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WSQUBjkUIHjJBTQVyqgf2rrn/EISdwcr6fXKDxGSkOsSDGyc0eD2FOqtOyIChLru kWH0xAylK2Wtksv0oTanwA== 0000919567-97-000028.txt : 19971110 0000919567-97-000028.hdr.sgml : 19971110 ACCESSION NUMBER: 0000919567-97-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971107 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENAISSANCE CAPITAL GROWTH & INCOME FUND III INC CENTRAL INDEX KEY: 0000919567 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 752533518 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11701 FILM NUMBER: 97710720 BUSINESS ADDRESS: STREET 1: 8080 N CENTRAL EXPRWY STREET 2: STE 210 LB59 CITY: DALLAS STATE: TX ZIP: 75206 BUSINESS PHONE: 2148918294 MAIL ADDRESS: STREET 1: 8080 N CENTRAL EXPWY., SUITE 210 LB 59 CITY: DALLAS STATE: TX ZIP: 75206 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPT 30, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended September 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _________________ Commission File Number: 0-20671 RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. ____________________________________________________________________________ (Exact name of registrant as specified in its charter) Texas 75-2407159 ____________________________________________________________________________ (State or other jurisdiction (I.R.S. Employer I.D. No.) of incorporation or organization) 8080 North Central Expressway, Dallas, Texas 75206-1857 _____________________________________________________________________________ (Address of principal executive offices) (Zip Code) 214/891-8294 _________________________________________________________________________ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No 4,342,942 shares of common stock outstanding at September 30, 1997. The Registrant's Registration Statement on Form N-2 was declared effective by the Securities and Exchange Commission on May 6, 1994. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
ASSETS December 31, 1996 September 30, 1997 Cash $15,841,272 $ 2,723,343 Accounts receivable 327,515 407,083 Temporary investments at cost -0- 18,728,767 Investments, at market value, cost of $25,708,570 and $23,300,503 34,186,155 30,015,636 Organizational costs, net of accumulated amortization 333,238 239,962 $50,688,180 $52,114,791 LIABILITIES Liabilities: Accounts payable - related parties 523,923 253,699 Accounts payable - trade 36,077 14,712 Dividends payable 997,860 344,035 Refundable deposits -0- 64,000 1,557,860 676,446 Net Assets: Common stock, $1 par value; 20,000,000 shares authorized; 4,339,422 and 4,342,942 shares issued and outstanding 40,561,989 40,601,837 Accumulated undistributed income (loss) 8,568,331 10,836,508 Net assets 49,130,320 51,438,345 $50,688,180 $52,114,791 Net asset value per share $ 11.32 $ 11.84
See accompanying notes to financial statements. 3 RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30, 1996 1997 1996 1997 Investment Income: Interest $ 583,839 $ 353,981 $ 1,697,980 $ 1,548,193 Dividends 75,000 80 231,190 150,080 Other investment income 85,323 54,585 203,823 105,585 Total investment income 744,162 408,646 2,132,993 1,803,858 Expenses: Amortization 31,433 31,433 93,275 93,275 Bank charges 11,790 -0- 17,641 10,632 Directors' fees 14,000 18,000 46,000 49,500 Legal and professional 23,016 24,665 122,165 106,602 Management fees 183,031 227,558 558,605 594,963 Other 32,475 34,908 156,999 157,779 Total expenses 295,745 336,564 994,685 1,012,751 Net investment income 448,417 72,082 1,138,308 791,107 Realized gain on investments 398,400 3,861,923 398,400 4,281,828 Unrealized gain (loss) on investments (1,352,719) 7,175,190 48,722 (1,762,451) Net increase (decrease) in net assets resulting from operations $ (505,902) $11,109,195 $1,585,430 $3,310,484
See accompanying notes to financial statements. 4 RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30, 1996 1997 1996 1997 Increase (decrease) in net assets resulting from operations Investment income - net $ 448,417 $ 72,082 $ 1,138,308 $ 791,107 Realized gain on investments 398,400 3,861,923 398,400 4,281,828 Unrealized gain (loss) on investments (1,352,719) 7,175,190 48,722 (1,762,451) Net increase (decrease) in net assets resulting from operations (505,902) 11,109,195 1,585,430 3,310,484 Distributions to shareholders (386,402) (347,435) (1,218,046) (1,042,307) Capital share transactions -0- -0- 784,964 39,848 Total increase (decrease) (892,304) 10,761,760 1,152,348 2,308,025 Net assets Beginning of period 42,544,824 40,676,585 40,500,172 49,130,320 End of period $41,652,520 $51,438,345 $41,652,520 $51,438,345
See accompanying notes to financial statements. 5 RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements September 30, 1997 (Unaudited) 1. Organization and Business Purpose Renaissance Capital Growth & Income Fund III, Inc. (the "Fund"), a Texas Corporation, was incorporated on January 20, 1994, and had no operations prior to June 24, 1994. The Fund seeks to achieve current income and capital appreciation potential by investing primarily in unregistered preferred stock investments of small and medium size companies which are in need of capital and which it believes offer the opportunity for growth. The Fund has elected to be treated as a business development company under the Investment Company Act of 1940, as amended ("1940 Act"). 2. Significant Accounting Policies A. Federal Income Taxes - The Fund intends to elect the special income tax treatment available to "regulated investment companies" under Subchapter M of the Internal Revenue Code in order to be relieved of federal income tax on that part of its net investment income and realized capital gains that it pays out to its shareholders. The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all its taxable income to its shareholders. Therefore, no federal income tax provision is required. B. Distributions to Shareholders - Dividends to shareholders are recorded on the ex-dividend date. The Fund declared dividends of $347,435 for the quarter ended September 30, 1997. C. Management Estimates - The financial statements have been prepared in conformity with generally accepted accounting principles. The preparation of the accompanying financial statements requires estimates and assumptions made by management of the Fund that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and income and expenses for the period. Actual results could differ significantly from those estimates. D. Financial Instruments - In accordance with the reporting requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," the Company calculates the fair value of its financial instruments and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made. 6 RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) September 30, 1997 3. Organization Expenses In connection with the offering of its shares, the Fund paid Renaissance Capital Group, Inc. (the "Investment Advisor") organizational expenses of $623,544. Such expenses are deferred and amortized on a straight-line basis over a five-year period. Amortization expense for the quarter ended September 30, 1997, was $31,433. 4. Investment Advisory Agreement The Investment Advisor for the Fund is registered as an investment advisor under the Investment Advisors Act of 1940. Pursuant to an Investment Advisory Agreement, the Investment Advisor performs certain services, including certain management, investment advisory and administrative services necessary for the operation of the Fund. The Investment Advisor receives a fee equal to .4375% (1.75% annually) of the Net Assets each quarter. The Fund accrued a liability of $227,558 for such operational management fees performed during the quarter ended September 30, 1997. 4. Investment Advisory Agreement (continued) In addition, the Fund has agreed to pay the Investment Advisor an incentive fee equal to 20% of any net realized capital gains after allowance for any unrealized capital loss of the Fund. This management incentive fee is calculated on an annual basis. 5. Capital Share Transactions As of September 30, 1997, there were 20,000,000 shares of $1 par value capital stock authorized, issued and outstanding $4,342,942, and capital paid-in aggregated $36,258,895. Year-to-date transactions in capital stock are as follows: Shares Amount Balance December 31, 1996 4,339,422 $40,561,989 Shares issued Nine months ended September 30, 1996 Shares issued in lieu of cash distributions 3,520 39,848 Balance September 30, 1997 4,342,942 $40,601,837 6. Related Party Transactions The Investment Advisor is reimbursed by the Fund for certain administrative expenses under the Investment Advisory Agreement. Such reimbursements were $29,640 for the quarter ended September 30, 1997. 7 RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. Notes to Financial Statements (Continued) September 30, 1997 7. Short-term Investments Short-term investments are comprised of U. S. Government and Agency obligations maturing between October 9, 1997 and May 7, 1998. Such investments qualify for investment as permitted in Section 55(a) (1) through (5) of the 1940 Act. 8. Investments The Fund invests primarily in convertible securities and equity investments of companies that qualify as Eligible Portfolio Companies as defined in Section 2(a) (46) of the 1940 Act or in securities that otherwise qualify for investment as permitted in Section 55(a) (1) through (5). Under the provisions of the 1940 Act at least 70% of the Fund's assets must be invested in Eligible Portfolio Companies. These stocks are carried on the Statement of Assets and Liabilities as of September 30, 1997, at fair value, as determined in good faith by the Investment Advisor. The securities held by the Fund are unregistered and their value does not necessarily represent the amounts that may be realized from their immediate sale or disposition. The investments held by the Fund are convertible, generally after five years, into the common stock of the issuer at a set conversion price. The common stock acquired upon exercise of the conversion feature is generally unregistered and is thinly to moderately traded but is not otherwise restricted. The Fund generally may register and sell such securities at any time with the Fund paying the costs of registration. Dividends are generally payable monthly. The stocks often have call options, usually commencing three years subsequent to issuance, at prices specified in the stock agreements. INVESTMENT VALUATION SUMMARY
CONVERSION COST OR FACE VALUE FAIR VALUE Bentley Pharmaceuticals, Inc. 12% Convertible Debenture $ 744,800 $ 1,088,000 $ 1,088,000 Contour Medical, Inc. 9% Convertible Debenture, Conv. price $5.00, maturity 7/1/03 2,500,000 3,500,000 3,500,000 The Dwyer Group, Inc. Common Stock 1,966,632 1,181,237 1,181,237 Integrated Security Systems, Inc. 9% Convertible Debenture, Conv. price $1.05, maturity 12/1/03 2,300,000 4,723,214 4,723,214 8 INVESTMENT VALUATION SUMMARY (CONTINUED) CONVERSION COST OR FACE VALUE FAIR VALUE Interscience Computer Corp. Series A Cumulative Convertible Redeemable Preferred Stock 4,000,000 4,000,000 1,400,000 Intile Designs, Inc. Common Stock 500,000 500,000 250,000 JAKKS Pacific, Inc. 9% Convertible Debenture, Conv. price $5.75, maturity 12/31/03 3,000,000 4,500,000 4,180,000 Play By Play Toys & Novelties, Inc. 8% Convertible Debenture, Conv. price $17.00, maturity 6/30/04 2,500,000 3,382,353 3,129,412 Poore Bros., Inc. 9% Convertible Debenture, Conv. price $1.09, maturity 7/1/02 1,788,571 2,512,614 2,311,857 Topro, Inc. 9% Convertible Debenture, Conv. price $1.50, maturity 3/1/03 500,500 1,918,583 1,918,583 9% Convertible Debenture, Conv. price $1.50, maturity 6/1/03 1,000,000 3,833,333 3,833,333 Voice It Worldwide, Inc. 8% Convertible Debenture, Conv. price $.95, maturity 11/1/02 2,450,000 2,450,000 2,450,000 Warrants 50,000 50,000 50,000 $23,300,503 $33,639,334 $30,015,636
The fair value of debt securities convertible into common stock is the sum of (a) the value of such securities without regard to the conversion feature, and (b) the value, if any, of the conversion feature. The fair value of debt securities without regard to conversion features is determined on the basis of the terms of the debt security, the interest yield and the financial condition of the issuer. The fair value of the conversion features of a security, if any, are based on fair values as of this date less an allowance, as appropriate, for costs of registration, if any, and selling expenses. Publicly traded securities, or securities that are convertible into publicly traded securities, are valued at the last sale price, or at the average closing bid and asked price, as of the valuation date. While these valuations are believed to represent fair value, these values do not necessarily reflect amounts which may be ultimately realized upon disposition of such securities. 9 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (1) Material Changes in Financial Condition Discuss material changes from end of preceding fiscal year to date of most recent interim balance sheet provided. If necessary for an understanding, discuss seasonal fluctuations. The following portfolio transactions are noted for the quarter ended September 30, 1997 (portfolio companies are herein referred to as the "Company"): Dwyer Group, Inc. During the Quarter ended September 30, 1997, the Fund sold 25,000 shares of common stock for $44,922.47 and recorded a realized loss of $42,627.53. The shares were sold to reduce the Fund s holdings below 10% of the total common shares outstanding. Integrated Security Systems, Inc. Effective October 31, 1997, the Fund entered into an Intercreditor Agreement with the Company, its subsidiaries, and an outside lender, pursuant to which the Fund has agreed to subordinate its first priority security interest in the assets of Tri-Coastal Systems, Inc., one of the Company s wholly owned subsidiaries. In exchange for the Fund s agreement to execute the Intercreditor Agreement, the Company agreed to increase the interest payable on the Fund s Convertible Debentures by 300 basis points for so long as the Intercreditor Agreement is in effect. Packaging Research Corp. The Fund recorded a realized loss on this investment of $2,438,421during the quarter. Play by Play Toys and Novelties, Inc. Effective July 3, 1997, the Fund invested $2,500,000 for the purchase of an 8% Convertible Debenture maturing in seven years and convertible into shares of common stock of the Company at $17.00 per share. The Company designs, develops, markets and distributes stuffed toys and sculpted toy pillows for the toy industry. In addition to the Fund s investment, Renaissance US Growth & Income Trust PLC ( RUSGIT ) invested $2,500,000 in a Convertible Debenture of the Company. The investment by RUSGIT was made under the same terms and conditions as the Fund s investment. Topro, Inc. During the Quarter ended September 30, 1997, the Fund converted all of its Convertible Debenture No. 1 and $499,500 of its Convertible Debenture No.2 into 1,000,000 and 333,000 shares of common stock, respectively. The Fund sold these shares during the quarter for $7,265,420.79, recording a realized gain of $5,265,920.79. Also, on July 29, 1997 the Fund exercised two warrants to buy 375,000 shares of common stock of the Company for $2.00 per share. Upon exercising the warrants, the Fund sold all 375,000 shares of common stock which resulted in proceeds to the Fund of $1,827,051.59, representing a capital gain of $1,077,051.59. 10 In addition to the Fund s conversion of a portion of its Convertible Debentures, RUSGIT converted a portion of its Convertible Debentures into common stock of the Company pursuant to the terms of the RUSGIT debenture, and the stock was thereafter sold. The RUSGIT conversion and sale of stock was made on a pari-passu basis with the Fund s conversion and sale of stock. Effective October 23, 1997, the Company issued to the Fund 25,000 warrants to purchase common stock at a strike price of $2.00 per share. The warrants were issued in consideration for the Fund s agreement to waive certain financial ratio requirements. (2) Material Changes in Operations Discuss material changes with respect to the most recent year-to-date period and corresponding period for prior year, if most recent quarter included also covers changes for quarterly period. Net investment income for the quarter ended September 30, 1997, as compared to September 30, 1996, reflects a reduction of $376,355. This reported decline is attributable to a reclassification in the third quarter of 1997 of $254,295 from interest income to realized gains and the failure to receive dividends from Interscience Computer Corp. The reclassification represents the recovery of cost from Packaging Research Corp. as interest in the second quarter and reclassified in the third quarter of 1997. During the third quarter, the fund realized $3,861,923 net gains from the sale of investments and $7,175,190 of unrealized gains resulting from an increase in fair value of its investments. Pending investment in portfolio investments, funds are invested in temporary cash accounts and in government securities. Although income and expenses are essentially stable, the Registrant anticipates that income will continue to increase as investments are made. An aggressive search for potential investments is ongoing. For the quarter ended September 30, 1997, the Registrant made dividend distributions of income to shareholders in the amount of $347,345 and accrued dividends payable to shareholders in the amount of $347,435. In addition, subsequent to September 30, 1997, the Registrant declared a special dividend from realized capital gains of $3,126,918. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC. November 7, 1997 ___________________________________________________________ Russell Cleveland, President and Chairman November 7, 1997 ___________________________________________________________ Barbe Butschek, Corp. Secretary and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
6 9-MOS DEC-31-1997 SEP-30-1997 42,029,270 48,744,403 407,083 239,962 2,723,343 52,114,791 0 0 676,446 676,446 0 40,601,837 4,342,942 4,339,422 0 160,453 4,281,828 0 6,715,133 51,438,345 150,080 1,548,193 105,585 1,012,751 791,107 4,281,828 (1,762,451) 3,310,484 0 1,042,307 0 0 3,520 0 108,742 1,426,611 90,746 0 0 0 594,963 0 1,012,751 50,284,333 11.32 .18 .58 .24 0 0 11.84 .02 0 0
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